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Audited Results for the year ended 30 June 2007

20 September 2007

For more information, please see Audited results for the year ended 30 June 2007 (PDF – 38KB)

• 81,3% – Increase in profit attributable to equity holders of the parent
• 62,3% – Increase in earnings per share
• R28,2 million – Increase in cash and cash equivalents

Review of the year

The board is pleased to announce a significant improvement in the results for the year. The primary focus has been on restoring base levels of profitability in the group, mainly by resolving the problems at the food–trading division and through streamlining operations and activities into a more cost–effective and efficient decentralised management structure. The board is confident that the foundation has been laid both from a structural and cultural perspective to support the group’s ambitions for strong growth and cash generation.

Financial performance

Results for the year to 30 June 2007 were much improved on the previous twelve months.

Rationalisation of the food–trading division (Sunkist) resulted in a significant reduction of turnover in this unit. Consequently group revenue for the year decreased by 2,8% to R495,0 million. However, excluding Sunkist, revenue rose by 13,2% from R382,6 million to R433,0 million, giving a more accurate reflection of the overall performance of the rest of the group.

Net profit attributable to shareholders showed an improvement to R16,6 million for the twelve months, an increase of 81,3% over the comparative period. This improvement was despite earnings being impacted by the cost of implementing shareholder transactions, the restructuring of Sunkist and the costs associated with reducing the centralised management structure.

Earnings per share (on a fully diluted basis) went up by 79% to 7,5 cents per share, while fully diluted headline earnings per share increased by 80% to 7,4 cents per share.

A highlight of these results has been the strong cash generation by the business units, of R28,2 million (2006: R3,6 million), achieved through profitable trading and good working capital management. Cash flows generated by operations amounted to R42,5 million (2006: R22,2 million). After investing and financing activities, cash and cash equivalents increased to R23,0 million from a negative R5,2 million at the prior year end.

As stated in the annual report at 30 June 2006, a contingent liability has been noted for several years in respect of amounts claimed by SARS as owing by Excellerate in respect of SARS disallowing the claiming of certain trademark allowances against taxable income. Due to the continued likelihood of a prolonged legal process and the expected high legal costs involved to resolve this matter, Excellerate has made a proposal to SARS for reaching a financial settlement. The company has provided for an amount which it believes appropriate under the circumstances. The remainder of the disputed amount will continue to be reflected as a contingency.

Were it not for this abnormal tax provision, net profit attributable to shareholders would have shown an improvement to R21,6 million for the twelve months, an increase of 136,3% over the comparative period. Similarly the fully diluted earnings per share would have increased by 131,0% to 9,7 cents per share and fully diluted headline earnings per share would have increased by 134,2% to 9,6 cents per share.

Excellerate’s balance sheet remains strong with minimal gearing and the group is well–placed to access any funding we need to fulfill our growth ambitions. As the group intends to pursue opportunities to grow by acquisition, the board has decided not to declare a dividend at this time. However during the year, the group undertook a share buy–back exercise whereby R3,8 million was utilised to acquire shares. This has in effect given an additional return to shareholders.

Review of operations

Overall, it has been a good year for Excellerate from an operational point of view with each of the main operational segments experiencing growth.

Trading

Goldenmarc

Growth of existing Goldenmarc lines as well as new lines resulted in revenue growth of 11,4%. However, within Ferrengi, the manufacturing unit managed by Goldenmarc, turnover came under pressure in the face of strong competition. Coupled with wage cost pressures in this unit, the overall performance of the unit was affected. These factors coupled with adequate cost management resulted in earnings before interest and taxes (EBIT) growth of 6,2%.

Although rising transport costs, and hence higher distribution costs, combined with increased employment costs will place pressure on margins, Goldenmarc management believes that this business unit has a good platform for growth in the coming financial year.

Foodserv

Growth within the hospitality and catering industry in general, as well as new agencies acquired by Foodserv, resulted in strong revenue growth of 23,7%. Favourable exchange and interest rates, which have made products more affordable to local customers, have also had a positive impact. These factors, together with satisfactory cost management, resulted in EBIT growth of 52,4%. While the interest rate outlook is a cause for concern, Foodserv is well positioned for continued growth.

Sunkist

Revenue at Sunkist decreased by R64,2 million from R126,0 million to R61,8 million as a result of the restructuring process. The unprofitable Trojan Food business was disposed of in February 2007, while Sunkist incurred some significant costs in winding up historically non–profitable areas of the business. Nonetheless, the ongoing operations achieved a break even position. The focus for the coming year will be on consolidating this division’s position in its market segments, and building stronger revenues off a more controlled overhead base.

Services

Interpark

A strong emphasis on the maintenance of contracts and relationships in the face of opportunistic competition resulted in a growth in turnover of 11,1%. These difficulties, combined with temporary disruption at a major contract, resulting in EBIT improving by 16,4%.

However, cost management remained well controlled and Interpark expects a stronger growth performance in the year ahead, based on better contract maintenance and the achievement of new site contracts.

Sterikleen

Again, the maintenance of contracts and relationships, together with new contracts, resulted in modest turnover growth. EBIT improved by 9,5%. Sterikleen expects a stronger growth performance in 2008 based on contract maintenance and the addition of new contracts.

Levingers

Levingers had a good performance the past year, and together with rolling out new stores, managed to increase revenue by 11,9% and EBIT by 51,9%. Another solid performance is expected in 2008 through the opening of new stores.

Light manufacturing

This area covers two business units, Ferrengi, which is managed by Goldenmarc, and Fruti Flow managed by Sunkist. These units are relatively small in the context of the group, and as such have not been separately analysed here. However, this segment has the potential to form a meaningful part of the core growth strategy in future should suitable acquisition opportunities arise.

Black economic empowerment

The board has been very pleased to welcome Akenton Services as partners in the group, and believe that the company will add significant value, not only as a BEE partner, but also through its innovative and dynamic outlook on business. Subsequent to the final implementation of the transaction in February 2007, management in each business unit has started to create their own relationships with Akenton, and we anticipate that these relationships will start to bear fruit in the next financial year.

Excellerate also has a 49% investment in the Katanga group, which continues to yield good results. Katanga is a BEE group, 51% owned by the Ikamva Labantu group, which provides a range of outsourced services and supplies trade products. Several new contracts have been secured in the services segment during the year.

Thanks

Chris Hall, previously CEO of the group, left Excellerate with effect from December 2006. The board and management extend their thanks for his contribution to the group. Thanks are also extended to our board, our management, our partners, and our employees for their contribution to our success this year.

Prospects

The group is now in a strong financial position and intends to pursue value– enhancing acquisitions in order to further drive growth in earnings and profitability during the year ahead. Now that the restructuring of the group has been completed and as the group’s more decentralised system of operating takes effect, the company expects to gain financial and operating benefits both at the head office and at the business unit level. The group is also highly focused on developing a culture of strong growth and cash generation, and it is expected that this too will have a positive impact in the coming period.

Gordon Hulley
CEO
Sandton
19 September 2007

For more information, please see Audited results for the year ended 30 June 2007 (PDF – 38KB)